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- Expect short-term volatility in the stock market surrounding the U.S. presidential election.
- Don’t let that volatility affect your long-term strategy — stay invested no matter who wins.
- Instead, take four steps to solidify your financial position right now.
With a major presidential election looming, it’s impossible not to wonder how the outcome will impact you and your money.
What should you do with your finances ahead of the vote? Do you need to make changes in your investment portfolio before the election? As a financial planner, here’s what I see as things to do (and what to avoid).
Keep politics out of your portfolio
You have good reason for holding the political views that you do. But when it comes to your investments, keep some distance between politics and your portfolio.
If you zoom out for a broader perspective, the US stock market has grown in value over time, regardless of which party is in the White House or which party controls Congress. Although it’s tempting to draw definitive connections like “the market does better when X is in power” or “stocks go up when Y happens,” it’s incredibly difficult to single out a specific cause for market movements or events.
I would not be surprised if we see increased volatility in the stock market around the election. In fact, I’d expect it. But if you’re a long-term investor, part of your job is to tune that out. It’s noise, not signal.
This is not to say that elections don’t matter or there’s no difference between the two candidates involved. It does mean that you should (a) expect big swings in either direction in the short term and (b) keep calm and stay invested.
Beyond Your Hammock’s fractional CIO, Mario Nardone of East Bay Investment Solutions, shared the below chart with us and our clients earlier this year. It shows what happens if you jump in and out of the market based on whether your preferred party is in the White House … and how those returns get crushed by the investor who simply stayed invested the entire time:
Courtesy of Eric Roberge, Beyond Your Hammock
On average, market returns have been positive in an election year and the subsequent year, regardless of who got elected. It’s more important to focus on the long term for your…